AUDUSD Higher After RBA Keeps Benchmark Level with Weak Economy in Mind

by on February 4, 2014 4:24 am BST

The Australian dollar rose against the greenback by 82 pips as the Reserve Bank if Australia (RBA) indicated that it would leave the benchmark rate level at 2.5 percent, which was the general consensus. Traders likely took the Aussie higher due to the lack of language from the RBA stating its current exchange-rate.

“Monetary Policy is appropriately configured to foster sustainable growth in demand and inflation outcomes consistent with the target,” said RBA Governor Glenn Stevens. Stevens sees the best course of action is through stable interest rates in the current economic climate. Economists believe the RBA will not touch interest rates for at least a year as housing prices continue to exponentially grow along with accelerating inflation. The Australian dollar is down eight percent in the last three-months, nearing levels of comfort, according to the RBA, and an interest rate hike could derail the currency devaluation.

The stable interest rates should help grow the gap in growth as mining companies plan further projects and China, Australia’s largest trading partner, is showing signs of a slowdown. Employment as also been troublesome. 2013 marked the worst year for employment, particularly full-time jobs, since Australia’s last recession in 1992. In December, 22,600 employees were terminated; and the unemployment rate maintains a four-year high of 5.8 percent.

The RP Data-Rismark home value index showed residential prices (house and apartment) increased 9.8 percent in major cities. In Metro-Sydney, home prices seen a 27 percent increase over the last year.

The RBA Index of Commodity Price Index showed a decline of 9.9 percent in 2013.